3/27/2007 8:07:00 AM Views mixed on outcome of minimum wage hike
Assuring life’s basics in Bloomington
Citites such as Bloomington have adopted living wages to ensure that employees earn a wage that allows them to pay for basic necessities. Highlights of Bloomington's ordinance: Purpose:
To ensure that employers pay a wage sufficient for a working family to meet basic needs in housing, child care, food, clothing, household items, transportation, health care and taxes. Covers:
City employees; city service contractors and subcontractors, and beneficiaries of a city grant, tax abatement or other forms of subsidy or assistance, such as a service contract or subcontract worth at least $10,000. For-profit employers of fewer than 10 employees and not-for-profit employers with fewer than 16 employees are exempt. Wage:
$10 per hour. If the employer provides health insurance, it is $8.50, regardless of whether the employee elects to receive health insurance. Tipped employees:
Shall earn the living wage for other covered employees minus 10 percent of the annual sales for the employer prorated on an hourly basis per employee. Raises:
The living wage shall be increased at the beginning of each calendar year by the same percentage that the Consumer Price Index for All Urban Consumers increases during the year ending the previous June 30. Exceptions:
The mayor may exempt employers from the ordinance if paying the minimum wage would substantially curtail the services provided by the covered employer, have an adverse financial impact on the city or is not in the best interests of the city. Enforcement:
Based on complaints of noncompliance by cov- or monitoring for compliance by the city legal department. Phase-in for not-for-profits:
A not-for-profit covered employer shall not be obligated to pay the full living wage in the first two years it receives assistance from the city. However, during those two years, which need not be consecutive, the not-for-profit organization shall reduce the gap between its wages and the living wage by 15 percent at the beginning of the first year and by 35 percent at the beginning of the second year. In effect since:
Economists agree that the purpose of a minimum wage is to provide a social safety net. However, they disagree on how a minimum wage should be determined and if it can deliver the intended benefit. Phil Powell, faculty chairman of the evening MBA program at the IU Kelley School of Business, believes the free market is the best way to decide wages. That thinking is Darwinian in nature, he said, and involves winners and losers. Governments cannot rely on that because of a need for a social safety net to help lowincome workers and to provide economic stability. Powell said the federal minimum wage helped those it was intended to help when it was created in 1938. Many people were not highly educated and performed manual labor, so the minimum wage ensured that they received a living wage. As people became more educated, reliance on unskilled workers diminished, and they found jobs that paid higher wages because there was a need for those workers. Powell said there always is a need to help unskilled workers and the very poor, though. "It provides a floor for productive citizens who are working to provide a living for themselves and families," said Charles Davis, professor of labor studies for Indiana University's Division of Labor Studies at IUPUI. Debating a raise Powell said mandating higher wages is an incentive for businesses to hire fewer people, causing unemployment to increase. "It's a question of having more working at a lower wage or fewer at a higher wage," Powell said. He said raising the wage will not benefit the people it is intended to benefit. About 80 percent of people on minimum wage are teenagers or young workers without families. "Increasing the minimum wage means more pocket money for teenagers," Powell said. Powell said raising the minimum wage also gives companies the incentive to hire illegal immigrants at a wage below the minimum wage. However, Davis said regardless of what a business sells, it requires a certain amount of employees to function successfully. Goods are sensitive to the market because of competition and supply and demand, so businesses cannot always pass increasing labor costs to consumers. Businesses can offset higher labor costs through more efficiency and productivity, which can be achieved by introducing new technology, changing the way work is organized and making changes in schedules, Davis said. Higher minimum wages in other states have not produced job losses, said Liana Fox, an economist with the Economic Policy Institute, a progressive think tank in Washington, D.C. If higher minimum wages caused unemployment, hundreds of thousands of jobs would have been lost due to the majority of states paying minimum wages above the federal level. But that has not happened, she said in her paper, "Minimum Wage Trends." Alternatives? While higher minimum wages help workers, some economists propose other ways to provide a social safety net without a minimum wage:
An earned income tax credit is a reimbursement by the government to make up the difference in the living wage. If the living wage is $16,000 and a family makes $12,000, the federal government writes a check, like a tax refund, for $4,000 to make up difference. The program exists but not many people know about it or understand its complexities, Powell said.
Health care vouchers
Food subsidy programs
Discretionary tax credits
No income taxes for people who make less than a certain income.
Better education Davis said education is part of the cycle that determines who holds high-paying jobs and low-paying jobs. People with more education tend to hold jobs that pay higher wages. Powell said college-educated workers are needed.
He said the necessary educational background can be achieved with charter schools, voucher systems and merit pay to reward creative schools and teachers. "Our education system is based on a 19th-century structure. It's not realistic for a global economy," Powell said. While alternative means can be used to benefit lowwage workers, Powell said a higher wage is easier to understand and most noticeable in paychecks. Politicians also like to use a minimum wage increase as a tool to rally support, Powell said. Should it be raised? The federal minimum wage last was raised nearly 10 years ago, the longest stretch in history that it has remained unchanged. A minimum wage increase is overdue, wrote Jared Bernstein, director of the Living Standards Program at Economic Policy Institute, and Isaac Shapiro, associate director at Center on Budget and Policy Priorities in Washington, D.C. The purchasing power of the minimum wage has deteriorated 20 percent since the last increase, they said in their June 20 report "Buying Power of Minimum Wage at 51-year Low." They also reported:
The minimum wage, adjusted for inflation, is at its lowest since 1955.
The minimum wage is 31 percent of the average wage of private sector, nonsupervisory workers. In the 1950s and 1960s it was 50 percent.
The real value of the minimum wage peaked in 1968, when it was equivalent to $7.71 per hour in today's dollars.
Reduced unions Declining union membership also has hurt the minimum wage, said Oren Levin-Waldman, professor of public policy at Metropolitan College of New York. Unions have been a basis of support for wage levels, Levin-Waldman said, but as membership has declined states have passed right-to-work laws that have made it difficult for groups of workers to organize. Due to the minimum wage's decreased value, states have raised their minimum wages or communities have developed ordinances or created living wages, Davis said. Fox noted that Washington ($7.93) and Oregon ($7.80) are the two states with the highest minimum wages and were in the Top 10 in overall job growth. "Over the past decade, state minimum wage increases have boosted the income of low-wage workers without causing negative effects," Fox said. Levin-Waldman said wages higher than the federal minimum have not hurt employment because they are not close to the market clearing wage. That is about $9 or $10 per hour, which is when demand would equal supply of workers. "Most jobs have to pay something close to that to attract good workers," Levin-Waldman said.